Yesterday, the Court of Appeals for the Federal Circuit (CAFC) held in In re Magnum Oil Tools International (Newman, O’Malley & Chen) that the burden of production to show unobviousness does not shift to a patent owner based upon the Board’s institution decision. In particular, the CAFC found that Cuozzo’s prohibition of appealing institution decisions does not prevent patent owners from appealing a final written decision based on a failure to establish prima facie obviosuness, even though the final written decision rests upon an institution decision that was not challenged in a request for rehearing on such basis.

Burden of Persuasion v. Burden of Production

Magnum first explains that the ultimate burden of persuasion is always on petitioner to show unpatentability:  “In an inter partes review, the burden of persuasion is on the petitioner to prove ‘unpatentability by a preponderance of the evidence,’ 35 U.S.C. § 316(e), and that burden never shifts to the patentee.  Dynamic Drinkware, 800 F.3d at 1378.”

However, the Magnum decision found that the burden of production may or may not shift to the patent owner based upon an institution decision.  If the patent owner seeks to rely upon an affirmative defense, such as by showing priority entitlement to overcome the grounds in an institution decision (as was the case in Dynamic Drinkware), then burden of production is on the patent owner.  By contrast, if the patent owner (as in Magnum) challenges the very existence of a case of obviousness in the challenger’s petition, the burden of production does not shift as a result of the institution decision:  “This is especially true where the only issues to be considered are what the prior art discloses, whether there would have been a motivation to combine the prior art, and whether that combination would render the patented claims obvious. We thus disagree with the PTO’s position that the burden of production shifts to the patentee upon the Board’s conclusion in an institution decision that ‘there is a reasonable likelihood that the petitioner would prevail.'”

No Request for Rehearing Required

The USPTO, in its intervenor brief, argued that Magnum should have requested rehearing of the institution decision in order to be able to appeal the question of whether there was a prima facie of obviousness established by the petition and institution decision.  The CAFC easily disposed of this argument, noting that 35 U.S.C. 141(c) provides an unfettered right to appeal a final written decision to the patent owner, so there is no requirement to first seek rehearing at the institution stage.

Improper Burden-Shifting & Conclusory Statements

The CAFC completely reversed the PTAB’s decision of obviousness, finding that the PTAB had improperly shifted the burden of production in several instances.  After identifying one such example, the CAFC concluded that “the Board expected Magnum to explain, and faulted Magnum for allegedly failing to explain, why an obviousness argument based on a first set of prior art references (Alpha, Cockrell, and Kristiansen) that the Board did not adopt would not be applicable to a second set of prior art references (Lehr, Cockrell, and Kristiansen).”  The CAFC further noted that, “[i]n its petition, McClinton merely argued in conclusory fashion that ‘[t]he same analysis’ for Alpha also applied to Lehr, without further explanation.  JA 117-18. The Board had no basis apart from this and similar conclusory statements to find a motivation to combine Lehr with the other prior art references, Cockrell and Kristiansen. Because such conclusory statements cannot satisfy the petitioner’s burden of demonstrating obviousness, the Board did not have sufficient evidence on which to base its legal conclusion of obviousness.”

Conclusion

While the CAFC has given the Board some leeway to modify a petitioner’s grounds of rejection, the Magnum decision shows there are limits.  In particular, there must be clear evidence supporting motivation to combine references if the Board adopts a modified version of petitioner’s grounds.  Patent owners should pay careful attention to the burden of production in light of the Magnum decision, especially where the Board has deviated from a petition’s original grounds and point out in their patent owner responses any instances of unsupported combinations of references or conclusory statements in the petition that are relied upon in an institution decision.